The Economic Injury Disaster Loan program under the CARES act has benefitted many, but has also invited scrutiny of certain business practices and loan applications. A recent uptick in federal prosecution for CARES Act fraud may have some business owners wondering about their potential liability, even if they have done nothing wrong.
What is a COVID-19 Economic Injury Disaster Loan (EIDL)?
The COVID-19 EIDL program was established to help small businesses recover from the impact of COVID-19 through the provision of accessible and borrower-friendly capital. EIDL loans are low-interest, fixed-rate, long-term loans from the Small Business Administration (SBA) that provided working capital to help overcome the effects of the pandemic.
Unlike the Paycheck Protection Program (PPP) which was eligible for loan forgiveness, an EIDL loan must be repaid, with deferments available during the first two years.
For many business owners, EIDL funds provided a critical lifeline during the pandemic-related uncertainty of 2020 and 2021. Loans of up to $2 million were used to help employers cover payroll, meet business obligations and expenses, and maintain operation during a crisis of the highest order.
For some others, the EIDL program became an opportunity for fraud. Some experts believe that of the $1 trillion distributed under the CARES Act in 2020-21, over 5% of these loans were fraudulent. The Small Business Administration has reported over 300 indictments, 200 arrests, and 70 convictions tied to PPP and EIDL fraud, resulting in the recovery of more than $600 million so far.
Alleged fraudulent acts involving EIDL loans have included:
- Misrepresentation of business income
- Misrepresentation of payroll and employees
- Falsified bank statements
- Falsified IRS records
- Applications through fraudulent business entities or shell corporations
Because the CARES Act and related loan programs were rolled out during an unprecedented nationwide emergency, some traditional controls were relaxed if not abandoned in some instances. As a result, opportunists were able to obtain EIDL loans with little to no verification of self-reported business information. Some of these have made the news for using EIDL and PPP funds to fund personal luxuries such as cars, jewelry, boats, and multi-million-dollar homes.
Potential Penalties for Misuse of EIDL Funds
The penalties for fraud under the CARES Act are severe. Criminal prosecutions for EIDL fraud can include allegations of federal law violations such as bank fraud, wire fraud, mail fraud, making false statements to the SBA, and many others. Penalties for conviction of these offenses range from five years in federal prison and $100,000 to 30 years imprisonment and $1,000,000 in fines.
These penalties can seem dire to those who believe they did no wrong, or are being investigated due to a mistake or administrative error.
DOJ Action to Prosecute EIDL Fraud
The U.S. Department of Justice is now casting a wide net to reel in abusers of the EIDL application process. Unfortunately, their zeal to prosecute can place innocent business owners under scrutiny. Even without the threat of prosecution, being questioned or audited can be stressful and time consuming for business owners that believe they are in the right. It is critical not only to maintain detailed business records but to seek quality representation in the event of an EIDL-related investigation. Your livelihood and business reputation could be at stake.
Contact Our EIDL Fraud Defense Attorneys in Tampa Today
The Tampa COVID-19 Economic Injury Disaster Loan Fraud Lawyers at Trombley & Hanes, P.A., understands the law and how to handle a criminal EIDL fraud case. The firm works to provide the government with documentation confirming the entity’s eligibility or proper use of funds. The firm works further to negotiate a favorable resolution with the government or defend the client’s interests in court.
For help with defense against federal criminal charges or civil liability based on allegations of fraud connected with the COVID-19 Economic Injury Disaster Loan or other COVID-19 and CARES Act fraud defense litigation, contact Trombley & Hanes in Tampa at 813-229-7918. The firm serves clients throughout Florida and nationwide.
Resources:
justice.gov/criminal-fraud/cares-act-fraud
abcnews.go.com/US/unprecedented-fraud-penetrated-rollout-covid-19-small-business/story?id=79218028
